Weekly Report - 6 April 2004

COLOMBIA | Vulnerability warning. The central bank has been underlining that it has done its bit to check the appreciation of Colombia's currency, and will continue to do so -- but that the government must do its part as well, by engaging in some serious fiscal adjustment. The bank reports that it bought US$500m between December and January to reduce the vulnerability of the economy, and intended to buy another US$700m between now and July.

It noted last week that the country is highly dependent on external financing and vulnerable to changes in capital flows because of its low level of domestic savings. `There are still weak aspects of the economy,' it said, `that would be adversely affected by a sudden reversal of those flows.' The low savings ratio, it said, `is associated with the high deficit in public finances' — what the government and congress must do is find ways to bring down the public debt to about 45% of GDP.

PERU | Gas & environment. The IDB has sidestepped the environmental debate over the US$1.6bn scheme to develop the Camisea gas deposits, noting that it can only vouch for the environmental credentials of the portion it is financing — the transport of the gas from the deposits to Lima. The bank last week said it hoped the remaining conditions would be fulfilled soon so that it could go ahead with its loan. Environmentalist and indigenous organisations have demanded an independent audit of the project. The IDB notes that the scheme has the potential to save Peru some US$5.2bn in energy outlays over the coming 30 years.

PERU-BOLIVIA | Oceanic outlet. In late April Bolivian and Peruvian authorities will meet to define the location of `Boliviamar', the stretch of Pacific coastline in the Ilo region which, together with the land for a free zone, Peru agreed to grant Bolivia in 1992. Bolivians have fretted over this offer, which could be construed as validating the border drawn by Chile after the War of the Pacific.